Gifting money sounds simple, right? Transfer the funds, make someone’s day, job done. But for wealthier families, the tax rules mean a generous gesture today can turn into an Inheritance Tax bill tomorrow.
Understanding the Rules
In the UK, most gifts are considered “potentially exempt transfers” (PETs). This means:
- If you survive 7 years after the gift, it’s outside your estate
- If you die within 7 years, some or all of the value may be taxed
Annual Gift Allowances
Every year, you can gift:
- £3,000 total (can be split between people)
- Up to £250 to as many individuals as you like (no double-using with the £3,000).
Unused £3,000 allowance can be carried forward 1 year.
Gifts from Income
This is the hidden gem. If you can show the gift is from surplus income and doesn’t affect your lifestyle, it’s immediately outside your estate – no 7-year wait.
Here’s an example. We helped a client gift £20,000 a year to each of their three children from surplus income, saving over £500,000 in potential IHT over a decade.
Taper Relief
If you die between 3 and 7 years of making a gift, taper relief may reduce the IHT bill. But it only reduces the tax rate, not the value of the gift in your estate calculation.
Why Timing Matters
Large gifts without planning can leave you asset-poor if circumstances change. That’s why we always run cash-flow models before making big transfers.
We combine tax knowledge with lifetime planning, so your generosity doesn’t backfire. With ISO 22222 and BS 8577 standards, you know the numbers are watertight.
If you want to help family financially without accidentally helping HMRC, let’s build a gifting plan that works now, and later.
